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Every night, Jim Cramer goes on "Mad Money " with the mission to help people become better investors. In the past 11 years of the show, the evolution of that mission has transformed to match the surrounding environment.
The show first began as an outgrowth of Cramer's radio show called "Real Money." At that time, people were craving specific investment ideas. Everything changed when the Great Recession hit investors, shifting the way they view the market.
During that time, the downturn ravaged many big companies, especially financial companies, while there was a dramatic decline in economic activity.
"That era changed things, and it changed me. It changed the show," Cramer said.
The show is no longer about just giving stock ideas, because in Cramer's opinion that is not enough anymore. In fact, he now deliberately has minimized highlighting stock ideas. He would rather an investor be taught to understand the process and be able to pick stocks for themselves.
When Cramer was growing up, he had to learn how to invest the hard way. His father "Pop" worked very hard selling boxes and bags to retailers, and it was tough to save money back then. One day Pop announced that he was going to take that money and buy the stock of National Video because his brother heard from a guy named Jack that it was the next big thing. At first the stock went up dramatically, and Pop was so happy he kept buying more.
In fact, that was all Pop knew about the stock. He did not follow it intraday and had not researched the company. Eventually the stock started to plummet, and Pop lost everything on the investment.
Cramer learned valuable lessons from watching his father go through this situation. That is why he created the following four rules for owning stocks:
No. 1 Tips are for waiters.
No. 2 You must do the homework if you are going to own an individual stock.
No. 3 If you can't do the homework, then own an index fund.
No. 4 If you fear losing money, don't own stocks at all because they will go down as well as up.
When Cramer graduated college, he worked as a reporter covering sports and government in Tallahassee, Florida, where he made $153 a week. While he did not have a lot of money to spare, he did find a way to save in his IRA and began to buy individual stocks for a personal account.
After losing money on a few investments, Cramer decided to go to the library and research companies. Eventually, he found a company called Natomas, which had just discovered a large find in Indonesia. He took $300 and bought the stock, and it quickly caught a takeover bid.
Cramer realized from his investment in Natomas that by doing the homework, it gave him an edge over others and helped to arm him with the proper knowledge about a stock. He was hooked on stocks and never turned back. Eventually, Cramer made enough money to pay for his first year of law school when he decided to become an attorney.
"I recognized that you can study, and you can pick worthwhile stocks that might be doing better than the average stock and that can, indeed, augment your savings provided you do it right, have some edge and stay current on the company," Cramer said.
When Cramer was in law school, he saw the beginning of the indexing of individual stocks. He saw the bundling first of the stocks followed by the Value Line Company, an influential firm at the time, and then ultimately the . However, Cramer was more interested in individual stocks.
In 1984, when Cramer started at Goldman Sachs, he used to get a call from his mother, who loved the stock market and would call for quotes on her favorite stocks. And with all of the fancy research available at that time, she chose to invest by buying what she knew and staying on top of it.
She liked to shop at Giant Food, a progressive supermarket chain at the time, so she bought the stock. The process of homework back then was to like an idea through personal experience, read up on it with the best research and match those insights with other firms. Cramer also learned during that time that sometimes Wall Street research can be very wrong, so a healthy dose of skepticism is a good thing.
"I want to show you that it isn't reckless to try to pick individual stocks and those who say it is just don't understand the process of first-hand experience, married with research and buttressed by skepticism. It all increases the odds of successful individual stock investing while minimizing the risks of single stock ownership," Cramer said.
And when Cramer decided to leave Goldman Sachs after four years and open his own hedge fund, the first stock that he bought was Heinz. Why? Because he liked to own a stock that represented a call on great management that could deliver earnings through thick and thin.
He did not count on the performance demands of a manager. He quickly learned that just buying a stock because it was terrific didn't matter to the fund, and those long-term investments did not produce daily performance.
"Heinz was a staple with a good dividend and what I didn't understand at the time was when the economy heats up people dump these kinds of stocks for something more cyclical," Cramer said.
Cramer didn't get that if he wanted to perform daily, he would have to take daily action. You can't just sit there and take a beating because you own best-of-breed companies.
But here was the problem — this rotation game is not one that investors can play at home without being a full-time professional. And eventually when the market got too hot, it crashed and all of the cyclical plays were decimated.
But guess what? Heinz snapped right back. That is what happens to best-of-breed well-managed companies.
"As a home gamer, you can use the flailings of the hedge-fund performers to your own advantage by picking up best-of-breed companies," Cramer said.